When people in Colorado make the decision to divorce, sorting out financial matters can be one of the most complex parts of the process. Retirement funds are often the largest assets held by a couple. These types of investment funds can be a major vehicle for future savings and pose some tricky questions when it comes time for property division in a divorce.
In 2019, new rules will be put in place for all divorces that change the way spousal support is treated for taxation. The prior tax status of alimony payments allowed payers to receive significant tax benefits and recipients to often receive a boosted income as a result. With the change, however, those tax benefits will no longer accrue to the payer of alimony. This is likely to have the greatest effect on couples with high-asset divorces in higher tax brackets. Because of these changes, individual retirement accounts or IRAs may be used more frequently as a means to transfer tax-free wealth in a divorce settlement.
One interesting aspect of the use of IRAs in divorce settlements has been the division of inherited IRAs in a divorce by the named beneficiary. While this type of division was not considered under the tax code, IRA custodians have been processing tax-free divisions pursuant to court orders during divorces. This can be one way in which a spouse who has inherited a substantial IRA can fulfill his or her obligations during the property division process.
Property division in divorce can be a complex process, especially when substantial assets and investments are involved. However, an attorney can work with a divorcing spouse to represent their interests and protect their assets and rights during the separation process.